26 and 108

The yields on US 2 year and 5 year notes are listed above. For a time on Monday morning, the 2 year yield was below IOER. The 5 year at 1.55% was an important growth marker for us. A month ago, the market seemed to come to terms with a present situation that is (was) less than hoped for. The front of the curve is now in full blown death spiral.

From a macro cycle perspective the massive collapse of the forward curve and run for yield is indicative of a 5th wave blow off. As an old mentor used to say: It may be the final phase but its also the wildest. Prior, much milder but common, moves of this character were always blamed on "convexity boys." Plunging yields would evaporate duration in mortgage finance and extinguish 10 year equivalents. The suspects may be different but the lamp shade crowd is now in control of the party. Thus, having shown up at a more discreet time, it's time to head for the door before someone embarrasses themselves.

The Treasury has no choice but to shill more paper this week. The process could be sloppy. The basic market function is still broken. The air up here is very thin.